Demand Recovery To Propel Accenture Stock Past $300?
Up almost 2x from its low in March 2020, at the current price of $282 per share, we believe Accenture stock (NYSE: ACN) has further upside potential. Accenture, a multinational consulting giant, has seen its stock rise from $150 to $282 off its March 2020 low, a little more than the S&P which increased by over 85% from its lows. Further, the stock is up around 35% from the level it was at before the pandemic. However, we believe that Accenture stock could rise around 10% to set fresh highs above $300, driven by expectations of continuing demand growth and strong Q2 2021 results. Our dashboard What Factors Drove 100% Change In Accenture Stock Between 2018 And Now? has the underlying numbers behind our thinking.
Accenture stock’s rise since late 2018 came due to an 8% rise in revenues from $41 billion in FY 2018 to $44 billion in FY 2020 (Accenture’s fiscal year ends in August). Net margins jumped from 9.9% to 11.5% over this period, and despite a 1% rise in the outstanding share count, EPS (earnings-per-share) rose 24% from $6.46 to $8.03 over this period.
Further, Accenture’s P/E (price-to-earnings) multiple rose from 22x in 2018 to 32x by 2020 end, and has risen to 35x currently. We believe that the company’s P/E ratio has the potential to rise further in the near term on expectations of continuing demand growth and a favorable shareholder return policy, thus driving the stock price higher.
Where Is The Stock Headed?
The global spread of Coronavirus, and the resulting lockdowns meant that a lot of businesses were cutting costs. Given that Accenture is in the business of technology consulting and outsourcing, this hampered their revenue growth over the first half of 2020. However, with economies opening up, demand for Accenture’s services is back on track. This is evident from the company’s Q2 2021 earnings, where revenue came in higher at $12.1 billion from $11.1 billion for the same period last year. Operating expenses rose at a rate slower than the growth in revenue, which led to operating margins increasing slightly from 13.4% to 13.7%. Combined with a roughly unchanged effective tax rate, EPS jumped from $1.94 to $2.27 over this period.
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Additionally, with the lockdowns being lifted globally and vaccinations being ramped up, we believe the company’s revenues stand to benefit further in the medium term. Further, if the company can successfully continue controlling expenses going forward, a rise in investor expectations could drive up the company’s P/E multiple. We believe that Accenture stock can rise around 10% from current levels, to set new highs above $300.